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3 Stocks to Avoid This Week

By Rick Munarriz – Sep 6, 2021 at 9:05AM

Key Points

  • GameStop has fallen the day after posting earnings in 10 of the past 11 quarters. It reports on Wednesday.
  • Carnival is taking on water as its near-term prospects for growth are more ports-of-stall than ports-of-call.
  • SentinelOne has only been public for a little more than two months, but the valuation is tough to justify.

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These investments seem pretty vulnerable right now.

In last week's article on three stocks to avoid, I predicted that Chewy (CHWY -1.85%)Carnival (CCL 4.61%), and Robinhood Markets (HOOD -0.11%) would have a rough few days.

  • Chewy stock went to the dogs after a disappointing quarterly report. "We've seen other providers of pet supplies, food, and meds languish after reporting earlier this earnings season, and it's hard to be optimistic that Chewy will break the mold this week," I argued last week, and I was right. The stock declined 13% for the week.
  • Carnival took on water, sinking 6% for a week with unfavorable headlines.
  • Finally, Robinhood Markets also went the wrong way. The next-gen online trading platform slipped 8%. Last week was when its more than 300,000 users who were awarded IPO shares could sell without a temporary ban from accessing future direct offers. 

The three stocks averaged a 9% decline for the week, as the S&P 500 rose 0.6% higher. It's a beat across the board, and I have missed only twice in the past 11 weeks. Can I keep the hot streak going? I see GameStop (GME 1.23%), Carnival, and SentinelOne (S -3.80%) as vulnerable investments in the near term. Here's why I think these are three stocks to avoid this week.

A seated person with question marks and a stock arrow on the wall.

Image source: Getty Images.

GameStop

Picking on meme stocks can be hazardous to your wealth, but it's been a smart bet when GameStop reports quarterly results. The stock has tumbled following 10 of the past 11 quarterly reports, averaging a 15% drop the trading day after its earnings call.

The trend has gotten worse this year, despite the stock being one of the market's biggest winners of 2021. The stock took a 34% hit the day after its fiscal fourth quarterly report in March, and then a 27% plunge three months later with its fiscal first quarter performance. 

Is GameStop doing some interesting things to reinvent its business? Sure. Is it going to zero? I don't think so. However, the trend is your friend, and right now you may want to think twice about owning the video game retailer heading into its quarterly report. It will offer up its latest results shortly after Wednesday's close. Look for the stock to move sharply one way or the other on Thursday.

Carnival

Even cruising fans are coming after Carnival. Last week kicked off with 50 passengers from a recent sailing filing a class action lawsuit against the world's largest cruise line operator for not doing a better job of protecting its passengers on a cruise that had a COVID-19 outbreak. It would go on to extend its vaccination requirement through the end of the year, a move that will help make its ships safe but will also alienate a chunk of its audience. 

The stock would then go on to tumble along with other tourist stocks following the U.S.'s problematic monthly jobs report. This recovery is clearly going to take a lot longer than bulls were expecting. 

SentinelOne

SentinelOne investors have to feel pretty good about where they are right now. The stock hit another all-time high on Friday, and it heads into this week's quarterly report with resounding momentum. SentinelOne is a fast-growing player in cloud-based cybersecurity. It knows how to assess threats, but can the same be said about its shareholders?

SentinelOne trades at some pretty jaw-dropping multiples. It's an $18 billion market cap company with just $112.5 million in trailing revenue. We're talking about a top-line multiple north of 150, sky-high even by inflated SaaS stock standards.  

SentinelOne is often compared to CrowdStrike (CRWD -1.04%), but it's not fair. CrowdStrike is far more successful. It's generating 10 times the revenue, fetching a third of the revenue multiple, and its gross margin is actually improving for what is at least the fifth year in a row. SentinelOne may be growing slightly faster, but it's buying that growth. Its gross margin has been contracting as SentinelOne is getting aggressive in winning low-margin deals.

Investors sending SentinelOne to its highest level since going public in June suggests it will need to exceed perfection in this week's financial update to keep the party going. I hate to be the sentimental one on SentinelOne, but there are a lot of ways that this abridged trading week can go wrong for the stock.

If you're looking for safe stocks, you aren't likely to find them in GameStop, Carnival, and SentinelOne this week.

Rick Munarriz owns shares of Robinhood Markets, Inc. The Motley Fool owns shares of and recommends CrowdStrike Holdings, Inc. The Motley Fool recommends Carnival and Chewy, Inc. The Motley Fool has a disclosure policy.

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Stocks Mentioned

GameStop Stock Quote
GameStop
GME
$25.60 (1.23%) $0.31
Carnival Stock Quote
Carnival
CCL
$9.75 (4.61%) $0.43
Chewy, Inc. Stock Quote
Chewy, Inc.
CHWY
$40.20 (-1.85%) $0.76
CrowdStrike Holdings, Inc. Stock Quote
CrowdStrike Holdings, Inc.
CRWD
$138.00 (-1.04%) $-1.45
SentinelOne, Inc. Stock Quote
SentinelOne, Inc.
S
$15.45 (-3.80%) $0.61
Robinhood Markets, Inc. Stock Quote
Robinhood Markets, Inc.
HOOD
$9.18 (-0.11%) $0.01

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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